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Pandemic fails
to dampen buy-in/buy-out market as pricing opportunities continue

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2020 is set to be the one of the biggest years on record for the buy-in and buy-out market despite Covid-19, according to LCP’s latest pensions de-risking report LCP predicts that volumes in 2020 will reach £20bn to £25bn, in part driven by attractive pricing in the wake of the pandemic. This has the potential to exceed the £24.2bn in 2018 which would make 2020 the second largest year on record after £43.8bn in 2019.

LCP’s annual analysis of the buy-in, buy-out and longevity swap market in the UK shows the pandemic pushed buy-in pricing to record levels of attractiveness. Falls in the price of assets that insurers use to back buy-ins drove price reductions of 5% or more in March and pricing relative to gilts continues to be materially lower than at the start of the year.

The report highlights that insurer appetite remains high. Whilst most insurers initially reported that 10-25% of transactions were delayed as a result of Covid-19, this has since fallen to less than 10%. There’s been no significant change in insurers’ target business volumes for 2020, and a number of transactions have been accelerated to benefit from favourable pricing opportunities.

The report also highlights that pension plans are on a dual track. Some pension plans have been pushed back on their de-risking journey by asset underperformance but many have been able to continue with their pre-pandemic strategy. 30% of pension plans surveyed for the report said that their pension plans were poised to reach full buy-out or self-sufficiency within 3 years.

LCP’s report also makes a number of forecasts including:

  • A trend to more buy-ins covering a subset of a scheme’s liabilities as a stepping stone to full buy-out, as in some cases Covid-19 has hit funding positions and reduced affordability for sponsors to plug buy-out shortfalls.
  • Small scheme transactions will increase by 25% in 2020 as demand surges for streamlined transaction processes.
  • A rise in “PPF+” buy-outs by pension plans whose sponsor is insolvent but have sufficient funding to insure benefits above PPF compensation levels.

Charlie Finch, Partner at LCP, commented:

“Pandemic panic has not infected business volumes or pricing in the buy-in and buy-out market, with Covid-19 so far proving to just be a bump in the road. Insurers have been operating as normal throughout the crisis and the outlook for H2 is strong.

We have helped nine pension plans complete transactions during lockdown, in many cases accelerated to take advantage of attractive pricing in the wake of the pandemic.

“Of course, we don’t yet know what the long term social and economic impact of Covid-19 will be, but insurer pricing remains better than at the start of the year and we may see further pricing opportunities over the coming months given the tumultuous economic environment."

Finding certainty in uncertain times

Finding certainty in uncertain times

Pensions de-risking report

How resilient has the buy-in, buy-out and longevity swap market been to Covid-19, and what opportunities are available to pension plans looking to insure their pension liabilities?

Download the report